ADELANTO — Authorities raided a budding marijuana business here after investigators found an illegal THC extraction lab at the location Thursday morning.

Initially reported to be an alleged methamphetamine lab, San Bernardino County Sheriff’s Department narcotics investigators served a search warrant at Lifestyle Delivery Systems Inc. at 10 a.m. Thursday after learning employees were operating an [alleged] illegal cannabis extraction lab there.

I added the ‘alleged’ because, journalism.

“Large amounts of propane, ethanol and butane were found at the location,” officials stated. “Large amounts of finished concentrated cannabis was also located and seized from the business.”

Lifestyle Delivery Systems, located at 9501 Commerce Way, is still under construction in preparation for commercial marijuana cultivation and manufacturing. No arrests have been made, but officials stated criminal charges are still pending.

“Commercial marijuana businesses cannot operate volatile extraction labs in California until such time the Bureau of Cannabis Control (BCC) finalizes regulations and issues licenses,” officials said. The BCC has not issued licenses or approved applications for manufacturing to date, officials stated.

This, of course, is all very shocking news, and so when I learned of it I called the company.

Though no official comment could be given as a statement was still be prepared and run by legal folks, the basics of what happened are, according to folks close to the company, as follows.

LDS has been permitted by the city of Adelanto to extract cannabis using ‘volatile’ methodology, and has passed all city inspections and received all relevant permits.

The problem appears to be that the county of San Bernadino doesn’t recognize the city’s standing to issue such permission, and isn’t doing so itself until the state changes laws in the new year to encompass full recreational use.

LDS is not ‘shut down’, in fact the company is still producing cannabis extracts, only now they’re solely using CO2, which doesn’t fall afoul of the ‘volatile’ issue.

The news story mentions code violations, which would be strange, as the San Bernadino Fire Department has inspected and okayed the facility as being within code. The company is apparently seeking clarity on this.

The company did lose some finished concentrate product in the raid, but I have no idea how much.

There were no arrests and none are expected. Guns were not drawn. Papers were served.

As for why this happened? That’s going to be one for the conspiracy theorists, but there’s talk that the county may be circling the wagons a little after an Adelanto councilman was arrested for bribery, and accused of asking an undercover FBI agent to burn down his business for the insurance.

Mayor Pro Tem Jermaine Wright, 41, was arrested Tuesday night and will appear in federal court Wednesday after his arrest as part of an undercover corruption probe targeting misconduct in the city, federal prosecutors said in a statement.

Earlier this year, a confidential informant introduced Wright to an undercover FBI agent posing as the owner of a marijuana cultivation business, prosecutors said. Wright agreed to vote in favor of a measure expanding the parts of Adelanto where marijuana could be grown in exchange for $20,000, according to a criminal complaint.

Wright directed the undercover agent to make the “donation” through a third party, who was not identified in court documents. Wright said that man “keeps us out of jail,” according to the complaint.

This story has no connection to LDS, at least on the surface, but with its connection to a weed sting, bribery, and the feds being involved, it would make sense that the county would come down hard on anything that could indicate, “Hey, nothing to do with us, we cool?”

LDS, for its part, should have known that there was a disagreement between county and city on their permitting, especially after the months of due diligence they went through and ample delays.

So we can likely scratch malfeasance as a cause for this issue. Mismanagement? That one may play out in the weeks ahead, but I tend to lean towards not throwing stones since, as we all saw, the county firefighters came through the facility and okayed it before production, giving it the county blessing. The company even sat on hold for a month, waiting for that to be completed, such was the importance they placed on it.

What we can most assuredly say is, this will happen again, to a variety of companies that are confused by who they’re supposed to obey in California; the feds who say no weed, the state who says yes weed, the county that says ‘weed but with restrictions’, and the city that says, ‘we like jobs, extract like an mf.’

I’m told the company will likely remove its trade halt over the weekend and be back at it Monday, at least that’s the plan. The stock did plunge when the news first landed, but regained significantly before the halt.

Personally, I’d keep it halted into next week, because I think there’s going to be a lot more to the story coming out. Whether it helps LDS or hurts it, that remains to be seen, but I’m eager to see what the company puts on the record before assessing.

Narcotics investigators were assisted by investigators from the Sheriff’s Bomb/Arson Unit, San Bernardino County Fire, San Bernardino County Hazmat and Adelanto Code Enforcement. Code Enforcement personnel found numerous code violations for building safety, construction and operations inconsistent with the Adelanto city ordinance.

[…] Commercial marijuana businesses cannot operate volatile extraction labs in California until such time the Bureau of Cannabis Control finalizes regulations and issues licenses.

— Chris Parry

FULL DISCLOSURE: Lifestyle Delivery Systems is an Equity.Guru marketing client.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

Chris Parry is a two-time Webster Award winning journalist who has been featured in the pages of The Vancouver Sun, The Province, National Post, Spin, Hollywood Reporter, FHM, Stuff, and Stockhouse. He was the first business journalist to identify and focus on the move to marijuana as an investment opportunity, and started Equity.Guru as a venue for honest, no punches pulled coverage of the North American public markets.

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